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WTO AND INDIAN ECONOMY
RAYNAH FERNANDES 13
SRUSHTI GANGAN 14
NEHA GAONKAR 15
1.WORLD TRADE ORGANISATION
Principles of WTO
Objectives & Function
2.INDIA & WTO
Agricultural Support Policies
Importance Of Indian Agriculture
5.AGREEMENT ON AGRICULTURE
The Three Boxes: Green, Amber and Blue
Trend In Pattern Of Consumption
Implication Of Agreement : Short Term and Long Term
6.WTO & INDIAN AGRICULTURE
India’s Agricultural Trade Under WTO Regime
7.A STUDY & ITS FINDINGS
We would like to acknowledge and express our sincerest gratitude for the efforts
and timely guidance of our professor Mrs. Neelam Shetty of Managerial
Economics for providing us the opportunity to study the impact of WTO
agreements on the Indian economy especially focused on the agricultural sector.
We would also like to thanks and express our gratitude towards professor Mr.
Agnelo Menezes of economics from the Bachelors of Arts faculty and his
student from XRCVC Master Prashant Lindayat.
Each and every team member gave in his best to make sure that this report has
all the necessary inputs and is completed on time. We definitely had a
knowledgeful and enriching experience.
WORLD TRADE ORGANISATION
The WTO provides a forum for negotiating agreements aimed at reducing
obstacles to international trade and ensuring a level playing field for all, thus
contributing to economic growth and development. The WTO also provides a
legal and institutional framework for the implementation and monitoring of
these agreements, as well as for settling disputes arising from their interpretation
and application. The current body of trade agreements comprising the WTO
consists of 16 different multilateral agreements (to which all WTO members are
parties) and two different plurilateral agreements (to which only some WTO
members are parties).
World Trade Organization as a Multi-lateral organization facilitates the free
flow of goods and services across the world and encourages fair trade among
nations. The result is that the global income increases due to increased trade and
there is supposed to be overall enhancement in the prosperity levels of the
member nations. To put it in brief WTO encourages a multi-lateral trading
system within its member countries.
Over the past 60 years, the WTO, which was established in 1995, and its
predecessor organization the GATT have helped to create a strong and
prosperous international trading system, thereby contributing to unprecedented
global economic growth. The WTO currently has 153 members, of which
117 are developing countries or separate customs territories. WTO activities are
supported by a Secretariat of some 700 staff, led by the WTO Director-General.
The Secretariat is located in Geneva, Switzerland, and has an annual budget of
approximately CHF 200 million ($180 million, €130 million). The three official
languages of the WTO are English, French and Spanish.
Decisions in the WTO are generally taken by consensus of the entire
membership. The highest institutional body is the Ministerial Conference, which
meets roughly every two years. A General Council conducts the organization's
business in the intervals between Ministerial Conferences. Both of these bodies
comprise all members.
Location: Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round negotiations (1986-94)
Membership:153 countries (as of 23rd July 2008)
Budget: 155 million Swiss francs for 2003Secretariat staff: 560
Head : Director-General, Supachai Panitchpakdi
Origin and Evolution of WTO: GATT to Uruguay
One of the most dramatic events that have taken place in later part of
century was culmination of GATT 1947 into WTO (The world Trade
organization), which came into being on 1st
January 2005. As an organization it
has vast powers and functions than what its ancestor GATT (General Agreement
on Tariffs and Trade) had, the objectives and goals of both being broadly the
same. GATT came into existence in the year 1948, after long negotiations to
form an organization called ITO immediately after the Second World War did
not materialize. The ITO was supposed to be the third international organization
in the "Golden Triangle" that was supposed to come into existence, the first two
being IMF and World Bank.
To begin with 23 countries became founder GATT members (officially,
"contracting parties"). GATT remained the only multilateral instrument
governing international trade from 1948 until the WTO was established in 1995.
There were several controversies on whether the GATT had actually contributed
to enhancement of world trade and did it serve its purpose of a multi-lateral
trading organization. The liberalization of international trade during GATT era
in its true sense was always debatable. However, it is very clear that over the
period of 47 years of its existence, GATT was successful in initiating a process
of tariff cutting in several groups of manufactured goods. Moreover the
signatories in the GATT increased from 23 to more than 100 in a short span,
ratifying the fact that being in the system was proved and considered more
beneficial than not being in it.
On the other front, the internal and domestic economic problems and
fluctuations made some economies to go back to increase the levels of
protection and increase trade barriers to enable faster domestic growth and
recovery. The problem was not just a deteriorating trade policy environment, but
some other serious issues. GATT negotiations did not include services and
agricultural trade in its gamut. As the world trade grew in size, the share of
services trade along with that of merchandise started to increase leading to the
insufficiency of the GATT principles to cover the expanding aspects of ever
evolving global trade. As a result, these loopholes were taken as advantage by
many trading countries, resulting in a lopsided development of world trade.
These and other factors convinced GATT members that a new effort to reinforce
and extend the multilateral system should be attempted. That effort resulted in
the Uruguay Round, the Marrakesh Declaration, and the creation of the WTO.
PRINCIPLES OF WTO
The agreements of WTO cover everything from trade in goods, services and
agricultural products, these agreements are quite complex to understand,
however all these agreements are based on some simple principles;
This is a very simple principle which advocates that every member
country must treat all its trading partners equally without any
discrimination, meaning that if it offers any special concession to one
trading partner, such concessions need to be extended to its other trading
partners as well in entirety. This principle effectively gets translated into
"MFN" or the Most Favored Nation. However, this principle is relaxed in
certain exceptional cases, such as if country X has entered into a regional
trade agreement with another country Y, then the concessions extended to
Y country need not be extended to other non-members of the agreement.
Besides these developing countries facing Balance of Payment problems
also get concessions, and if a country can prove unfair trade it can retain
its power to discriminate.
The Non-discrimination principle is also translated as a principle that
would ensure "National Treatment" to all the goods, services or the
intellectual property that enters any other countries national borders.
This Principle reflects that any concession extended by one country to
another need to be reciprocated with an equal concession such that there
is not a big difference in the countries Payments situation. This was
further relaxed for developing countries facing severe Balance of
Payments crisis. This principle along with the first principle would
actually result in more and more liberalization of the world trade as any
country relaxing its trade barriers need to extend it to all other members
and this would be reciprocated. Thus progressive liberalization of the
world trade was aimed at by WTO.
The multilateral trading system is an attempt by governments to make the
business environment stable and predictable. Thus this principle ensured
that there is lots of transparency in the domestic trade policies of member
countries. Moreover, the member countries are required to sequentially
phase out the non-tariff barriers and progressively reduce the tariff
barriers through negotiations.
Thus, these principles were primarily to serve the purpose of freer and fair trade
and also to encourage competitive environment in the global market. This was
further supposed to enhance development and Economic reforms in the
developing countries over a period of time in a phased manner.
WTO: OBJECTIVES AND FUNCTIONS
The overriding objective of the World Trade Organization is to help trade flow
smoothly, freely, fairly and predictably; to meet its objective WTO performs the
•Administering W.T.O Trade Agreements.
•Acting as a Forum for trade negotiations.
•Settling and Handling Trade disputes
•Monitoring and reviewing national trade policies,
•Assisting the member in trade policies through technical assistance and
•Technical assistance and training for developing countries.
•Co-operation with other International Organization
The goals behind these functions are set out in the preamble to the Marrakech
Agreement. These include:
•Raising standards of living;
•Ensuring full employment;
•Ensuring large and steadily growing real incomes and demand; and
•Expanding the production of and trade in goods and services.
These objectives are to be achieved while allowing for the optimal use of the
world's resources in accordance with the objective of sustainable development,
and while seeking to protect and preserve the environment. The preamble also
specifically mentions the need to assist developing countries, especially the least
developed countries, secure a growing share of international trade.
INDIA AND WTO
India is one of the founding members of WTO along with 134 other countries.
Various trade disputes of India with other nations have been settled through
India has also played an important part in the effective formulation of major
trade policies. By being a member of WTO several countries, are now trading
with India, thus giving a boost to production, employment, standard of living
and an opportunity to maximize the use of the world resources. It is expected
that reduction in export subsidy and domestic support to the agricultural sector
by the developed countries may lead to a decrease in production in those
countries and, therefore, will give scope for expansion of exports from the
India, with its cheap labour, diverse agro climatic conditions and large
agricultural sector can definitely gain through expansion of international trade in
agricultural products. However, the concerns relating to quality of products for
seeking markets in the advanced countries needs to be addressed on an urgent
basis.(Source : Ministry of Agriculture)
The economy of India is the fourth largest in the world, and is the tenth largest
in the world Growth in the Indian economy has steadily increased since 1979,
averaging 5.7% per year in the 23-year growth record.
Indian economy has posted an excellent average GDP growth of 6.8% since
1994. India has emerged the global leader in software and business process
outsourcing services, raking in revenues of US$12.5 billion in the year that
Agriculture has fall to a drop because of a bad monsoon in 2005. There is a
paramount need to bring more area under irrigation.
Export revenues from the sector are expected to grow from $8 billion in 2003 to
$46 billion in 2007. India’s foreign exchange reserves are over US$ 102 billion
and exceed the foreign reserves of USA, France, Russia and Germany. This has
strengthened the Rupee and boosted investor confidence greatly.
A strong BOP position in recent years has resulted in a steady accumulation of
foreign exchange reserves. The level of foreign exchange reserves crossed the
US $100 billion mark on Dec 19, 2003 and was $142.13 billion on March 18,
Reserve money growth had doubled to 18.3% in 2003-04 from 9.2 in 2002-03,
driven entirely by the increase in the net foreign exchange assets of the RBI.
Reserve money growth declined to 6.4% in the current year to January 28, 2005.
During the current financial year 2004-05, broad money stock (M3) (up to
December 10, 2004) increased by 7.4 per cent (exclusive of conversion of non-
entity into banking
7.3 per cent)Economics
experts and various studies conducted across the globe envisage India and China
to rule the world
in the 21st century.
SECTORS OF INDIAN ECONOMY
there are three major sectors in Indian Economy
Agriculture and allied sectors like forestry, logging and fishing accounts for
25% of the GDP. It employs almost 58% of the total work force. It is the largest
economic sector and plays a significant role in the overall socio-economic
development of India. Due to steady improvement in irrigation, technology,
modern agricultural practices the yield per unit area of all crops has increased
Index of industrial production which measures the overall industrial growth rate
was 10.1% in October 2004 as compared to 6.2% in October 2003. The largest
sector here holds the textile industry. Automobile sector has also demonstrated
the inherent strength of Indian labor and capital. The three main sub sectors of
industry viz Mining & quarrying, manufacturing, and electricity, gas & water
supply recorded growths of 5%, 8.8% and 7.1% respectively.
The service sector is the fastest growing sector. It has the largest share in the
GDP accounting for about 48% in 2000. Business services, communication
services, financial services, community services, hotels and restaurants and
trade services are among the fastest growing sectors.
Indian agriculture was backward in every respect on the eve of Independence in
1947. It was characterised by feudal land relations, primitive technology, and
the resultant low productivity per hectare.
The First Five year Plan (1951-56) accorded the highest priority to the
agricultural sector to tide over the difficult food problem created by the partition
of the country. Since then, agriculture has occupied an important place in every
successive plan. The nation has invested huge resources for the development of
agriculture under various plans. Two major components of agricultural
development strategy have been:
•subsidies on inputs and
•Minimum support price for output.
Agricultural sector occupies a key position in the Indian economy. It
provides employment to about 65 per cent of the working population of India.
Around one-quarter of India's national income originates from the agricultural
Agricultural products like cereals (mainly rice), tea, coffee cashew, spices,
tobacco and leather are important items of India's exports and hence foreign
exchange earnings. Agriculture is also the source of raw material for agro-based
industries including textiles, cigarettes, jute, sugar, paper, processed foodstuffs
and vanaspati. Moreover, agricultural sector provides market for capital goods
(tractors, pump sets and other agricultural machinery), inputs (fertilisers,
insecticides), and light consumer goods.
Development of the agricultural sector depends, to a large extent, on such
core industries as power, petroleum, fertilizers and machine tools. Thus, there is
a degree of inter-dependence between agriculture and industry.
Needs of India
• India’s basic objectives in the ongoing negotiations are:
(a) To protect its food and livelihood security concerns and to protect all
domestic policy measures taken for poverty improvement, rural development
and rural employment.
(b) To create opportunities for expansion of agricultural exports by securing
meaningful market access in developed countries.
Use Distribution of India's Geographical Area
After China, India is the most populous country in the world accounting for
16.0 per cent of world population. It is the seventh largest country in the world
occupying 2.4 per cent of total world area. It has a land frontier of 15,200
kilometers and its sea coast runs to the length of 6,100 kilometers’.
Cropping pattern refers to the distribution of cultivated land among different
crops grown in a country. Cropping pattern reveals the nature of agricultural
operations, e.g. the importance of food crops vis-À-vis cash crops.
Cropping pattern is influenced by a host of factors which can be broadly
classified into two categories: (a) physical factors and (b) economic factors.
Among the physical factors, the important ones are soil conditions, extent of
rainfall and type of climate. The economic factors include relative prices of
agricultural commodities, size of the farms, availability of inputs, demand
conditions, system of land holding and government policy regarding exports and
imports, taxes and subsidies.
There are two main agricultural seasons in India: (a) kharifunder which
crops are planted at the onset of the Southwest monsoon in June-July and
harvested in September-October, (b) rabi under which crops are planted usually
between October and December and harvested between March and May
India is a large country with diverse climatic, soil and terrain conditions. A
wide variety of crops are grown in different parts of the country.
Small-sized Agricultural Holdings
Small-sized holdings are a disturbing feature of the Indian agriculture. The
average size of farms has become smaller over the years and the trend
continues. One important reason for this trend is the fast growing population
which has adversely affected the per capita availability of land after
The pressure of population along with some social and economic factors has
decreased the size of agricultural holdings in India.
Indian agriculture was backward and stagnant at the time of Independence.
Ever since the launching of the First Five Year Plan (1951-56), agricultural
sector has received the prime attention of the Government in the overall strategy
economic development. As a result, farm productivity has increased over years
and the country has achieved high degree of self-sufficiency in terms of' food
grains and raw material for agro-based industries.
Although per hectare yield of major crops has increased over the last four
decades yet it is far below the international levels.
System of Marketing of Agricultural Produce in India
Marketing is the last link in the chain of production process. An efficient
marketing system which ensures reasonable return to the producers is essential
to induce them to produce more.
During the pre-Independence period, Indian agriculture was backward and
stagnant and there was hardly any marketable surplus. Therefore, the system of
marketing, though defective, did not attract much attention. However, in the
post independence period and particularly after the green revolution, agricultural
instituting has become a prime concern for the planners. Due to increase in
agricultural productivity, the marketable surplus has increased; necessitating
reforms in the existing system. The objectives of these reforms are to ensure:
• Fair prices for the produce of the farmers,
• Adequate and regular availability of food grains for urban areas, and
• Regular supplies of raw materials for the industries
Rural Agricultural Credit in India
Credit Needs of the Indian Farmers
Need for agricultural credit arises because modern farm technology is costly
and the personal resources of the farmers are inadequate. Provision of
agricultural credit, as an input, is essential for widespread use of improved
Credit requirements of the farmers may be classified (a) on the basis of
propose, and (b) on the basis of time. They need credit for productive as well as
for unproductive purposes. Productive purposes include all such activities which
help in the improvement of agricultural productivity such as purchase of inputs
and permanent improvements in land. Unproductive credit needs include
celebration of marriages and other social and religious functions and litigation.
Classification based on time period has three categories. Farmers need credit
for short period (up to 15 months) for the purchase of seeds, fertilisers, fodder
for livestock etc. They need credit for medium term (15 months to 5 years) for
the purchase of agricultural tools and implements, cattle, and digging and
repairing of wells. They also require long-term loans (more than 5 years) for the
purchase of heavy farm machinery like tractors and harvesters.
Extent of Rural Indebtedness
According to the All-India Debt and Investment Survey, 1981-82, at the all-
India level about 20 per cent of the households in the rural sector and 17 per
cent in the urban sector were indebted. The average value of debt per indebted
household in the rural sector was Rs. 3,311, much less than the urban sector
average of Rs. 5,930. At the States' level, high percentage of indebted rural
households was noticed in Tamil Nadu (28.7), and Kerala (28.5). The
percentage of rural households reporting indebtedness was lowest for Assam
(4.8). Kerala (29.7) topped the list in the urban sector whereas Assam (4.3)
recorded the lowest figure. Widespread rural indebtedness is the result of lack of
credit facilities at the institutional level.
Source of Rural Credit
Sources of agricultural credit are grouped into two categories:
(a) Institutional sources and (b) Non-institutional sources.
Institutional sources include cooperative societies, commercial banks and
other government agencies. Non-institutional sources comprise moneylenders,
landlords, relatives etc.
A. Co-operative Societies: Co-operative societies form an integral part of
the rural credit system in India. They are the main source of institutional credit
to the farmers. These societies are chiefly responsible for breaking the
monopoly of moneylenders in providing credit to the agriculturists. There are
around 1 lakh such societies in the country at present.
The rising over dues have reduced the borrowing and lending activities of
these societies. Moreover, these societies have paid inadequate attention to the
needs of landless workers and rural artisans. Influential people in the villages
have been the main beneficiaries of co-operative Credit. The RBI has repeatedly
expressed concern in this regard because non-repayment of loans by the existing
owners can adversely affect recycling of funds and the credit chances of the
B. Moneylenders: There are two types of moneylenders in rural areas:
(a) Agriculturist moneylenders who carry on the business of money lending
along with farming, and (b) professional moneylenders whose only occupation
is money lending. Although the relative importance of moneylenders has
declined over the years, they are still an important source of credit for the rural
le, particularly the small farmers and the artisans.
Moneylenders are popular because, unlike government agencies, they give
credit for every purpose. They are easily approachable by the credit seekers and
there are not many formalities in transacting a loan. However, the malpractices
adopted by the moneylenders to exploit the needy farmers cannot be
D. Kisan Credit Cards: The introduction of Kisan Credit Cards (KCCs) was
a significant innovation in the rural credit delivery mechanism. However, the
outreach of the KCCs to cover all eligible farmers under the scheme has been
hampered by the lack of updated land records, small landholdings an illiteracy
India’s Agricultural Trade: Some Recent Trends
India has been both an importer and exporter of agricultural commodities for a
very long-time. An examination of trends in exports of various commodities
during recent years suggest that many commodities like rice, meat products,
processed foods, fish, fruits and vegetables registered very high growth rates
during the nineties. On the other hand some traditional exports like tea, cotton
were not able to sustain their growth rates after the liberalisation. Marine
products were the largest export earner while oil meals were also a major item
in early 1990s. Recently oil meal exports have suffered and cotton exports have
India’s agricultural imports have displayed extreme fluctuations. In recent years,
imports of only two items, namely, pulses and edible oils have recorded
consistently high volumes. Import of pulses, which used to vary in the range of
3-6 lakh tonnes in recent years except in 1997-98, when over 1 million tonnes
were imported, surged to over 2 million tonnes in 2001-02 and has been close to
that level since then, essentially reflecting shortage of domestic production. As
in the case of agricultural export items, concerted efforts are required to raise
the productivity and production of pulses in the domestic sector.
In fact the gaps between agricultural exports and imports have been narrowing
down in recent years. Although India abolished its QR’s in 2001, this has not
resulted in any surge of agricultural imports. There is an increase in growth but
this is mainly because of large imports of edible oils. Recently there has also
been a sharp increase in imports of cotton, raw wool and rubber.
India has a large potential to increase its agricultural exports in a liberalized
world provided it can diversify a significant part of its agriculture in to high
value crops and in agro-processing. This would depend first on undertaking
large infrastructure investment in agricultural and agro processing as also in
rural infrastructure and research and development. India has not only to create
export surplus but also to become competitive. The potential for exports would
also depend on freeing of agricultural markets by the developed countries.
Agricultural Support Policies
India, like most of the other countries including developed countries, employs a
variety of instruments to both protect and support its agriculture. These
instruments can broadly be clubbed in to three categories: domestic policies,
import policies and export policies.
Domestic policies comprise a wide range of policy instruments like input
subsidies on fertilizers, power, irrigation water, public investment in
development of water resources –surface and groundwater, government
intervention in markets, direct payment to farmers (such as those in the form of
deficiency payments, insurance and disaster payments, stabilisation payments,
as also some compensatory payments), price support for major crops , general
services (such as government transfers to agricultural research and development,
extension services, training and agricultural infrastructure etc)
Import policies refer essentially to border protection through trade barriers such
as quantitative restrictions, quotas and tariffs on imports which in the process
create a wedge between domestic and world market prices.
Export policies include those that either promotes exports (through instruments
like subsidies and marketing arrangements that make exportable of a country
more competitive) or those policies that constrain exports (often through
canalization and restriction of exports and export taxes etc). Usually however
import policies etc are discussed in the context of
The major components of input subsidy are: power, irrigation water and
fertilizers .Subsidy -on both irrigation and power – is defined as the difference
between the cost of providing the service and the charge levied for the service
for the total quantum of that particular input used. In case of power therefore it
includes that difference between the unit cost of power supply to all sectors
combined and the average tariff rate charged from agricultural users for each
unit of power and multiplied by the quantity of power supposedly supplied to
agriculture. Irrigation subsidy is defined as the difference between the cost of
supplying water to farmers for irrigation and charges levied on water .Viewed in
terms of pure domestic economy, the input subsidies have often been accused of
causing most harmful effect in terms of reduced public investment in agriculture
on account of the erosion of investible resources, and wasteful use of scarce
resources like water and power. Further, apart from causing unsustainable fiscal
deficits , these subsidies by encouraging the intensive use of inputs in limited
pockets have led to lowering of productivity of inputs, reducing employment
elasticity of output through the substitution of capital for labour and
environmental degradation such as water logging and salinity .It is therefore
imperative to reduce these subsidies for stepping up public investment in
agricultural research and extension, canal irrigation and rural electrification. The
reduction in subsidies would also have a favourable impact on the efficiency of
input use, equity and environment. While subsidy reduction is one way to find
resources for increasing public investment in agriculture, current and capital that
lead to distortions and deleterious effects on natural resources and cropping
pattern. In fact, there is scope for significant reduction in the cost of subsidy
through better designing of the programmes and delivery mechanism. Further
merely rolling back subsidies and diverting these to agricultural investment
cannot solve all the problems of agriculture (Government of India: 2005).
The export subsidies can be given in the form of transport assistance for export,
providing common infrastructure for common use by small and medium
producers, quality building and assurance measures, credit guarantee and
insurance to exporters at better terms etc. The export subsidy is being given in
the form of exemption of export profit from income tax and subsidies on cost of
freight on export shipments of certain products like fruits, vegetables, and
IMPORTANCE OF AGRICULTURE IN INDIAN ECONOMY
The direct contribution of the agriculture sector to national economy is
reflected by its share in total GDP, its foreign exchange earnings, and its role in
supplying savings and labor to other sectors. Agriculture and allied sectors like
forestry and fishing accounted for 18.5 percent of total Indian Gross Domestic
Product (GDP) in 2005-06 (at 1999-2000 constant prices) and employed about
58 percent of the country's workforce (CSO, 2007). It accounted for 10.95
percent of India’s exports in 2005-06 and about 46 percent of India's
geographical area is used for agricultural activity.
Yields per unit area of all crops have grown since 1950 due to application of
modern agricultural practices and provision of agricultural credit and subsidies
since Green revolution in India. However, international comparisons reveal that
the average yield in India is generally 30% to 50% of the highest average yield
in the world.
The low productivity in India is a result of the following factors:
• Overregulation of agriculture has increased costs, price risks and uncertainty.
• Government intervenes in labour, land, and credit markets. India has
inadequate infrastructure and services
• Illiteracy, general socio-economic backwardness, slow progress in
implementing land reforms.
• Inadequate or inefficient finance and marketing services for farm produce.
The average size of land holdings is very small due to land ceiling acts and in
some cases, family disputes.
• Such small holdings are often over- manned, resulting in disguised
unemployment and low productivity of labour.
AGREEMENT ON AGRICULTURE
After over 7 years of negotiations the Uruguay Round multilateral trade
negotiations were concluded on December 1993 and were formally ratified in
April 1994 at Marrakesh, Morocco. The WTO Agreement on Agriculture was
one of the main agreements which were negotiated during the Uruguay Round.
The WTO Agreement on Agriculture recognizes free and market oriented
trading system in agriculture.
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